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Legal briefing notes

Subsidiary prosecution of persons controlling the debtor

Nowadays, in the area of bankruptcy of legal entities, subsidiary prosecution of the persons that are controlling the debtor has become a universal mechanism for obtaining satisfaction of claims of creditor. The main task of this mechanism is the debt cancellation of a debtor at the expense of its unscrupulous managers, founders, persons affiliated with them, beneficiaries and other persons in any way influencing or having the opportunity to influence the debtor's actions - legal entities. This is because the current legislation and the positions of the highest courts have significantly optimized the process of subsidiary prosecution by expanding the list of persons involved and applying various kinds of presumptions to them.

The reasons for subsidiary prosecution

The main reasons for subsidiary prosecution of entities are:

  • actions (inaction) of persons that are controlling the debtor that led to the impossibility of satisfying the claims of creditors and caused the bankruptcy of the debtor (Article 61.11 of the Bankruptcy Law);
  • failure to apply (untimely application) of the persons that are controlling the debtor to the commercial court on behalf of the debtor with an application for self-bankruptcy or failure to take the necessary measures for this (Article 61.12 of the Bankruptcy Law).

In addition to the risk of subsidiary prosecution of the persons that are controlling the debtor for the debts of a person, it is also possible, to recover damages from the persons that are controlling the debtor as a result of actions or inaction of the persons that are controlling the debtor (clause 1, article 61.20 of the Bankruptcy Law). These are just the main categories established by law, which include many nuances.

Persons that may be subsidiary prosecuted:

The range of persons who may be subsidiary prosecuted is quite wide. These include:

  • managers of the debtor that are legal entities (both nominal and actual);
  • participants / founders of the debtor that are legal entities with a share of at least 50% of the authorized (share) capital / voting shares;
  • financial director, chief accountant of the debtor that are legal entities;
  • affiliated with the persons specified in paragraphs 1-3 (for example, close relatives);
  • ultimate beneficiaries (beneficiaries) who have benefited from the illegal or dishonest behavior of the management of the legal entity;
  • liquidator and (or) members of the liquidation commission and other persons (the list of such entities is open).

The list of persons who have the right to apply to the commercial court with an application for subsidiary prosecution of persons that are controlling the debtor is also wide. In particular, an arbitral receiver, bankruptcy creditors of the debtor that are legal entities, authorized body, employees of a debtor that are legal entities. In case of the recovery of damages, the members of the debtor that are legal entities also have such a right. It is noteworthy that in case of subsidiary prosecution of persons that are controlling the debtor for the debts of the debtor the specified debt cannot be extinguished even as a result of the personal bankruptcy of persons that are controlling the debtor (paragraphs 1, 2, clause 6, article 213.28 of the Bankruptcy Law). Thus, the debt under the “subsidiary prosecution” or recovery of losses on corporate grounds becomes “perpetual” and cannot be extinguished under any circumstances.

Subsidiary prosecution

In such situations, it is important to understand the perspective from the outset and build a defense position based on objections against the claims that were made and existing negative presumptions. For example, if there is a requirement to subsidiary prosecute the former manager on the basis of his failure to apply (late applying) of an application for bankruptcy of a legal entity controlled by him. The objections can be raised, indicating the positive intention of the manager to overcome financial difficulties within a reasonable time, using all possible means for this. Of course, it is necessary to understand that any objections must be motivated and confirmed. Therefore, in order to avoid such situations, or at least to build sustainable redoubts in case of such risks, it is necessary not only to take all necessary actions in a timely manner, but also to document them promptly.

Legal services from the Tsentralny Okrug Law Firm

Our company provides services for the analysis of the provided information and documentation, the determination of the perspectives of the protection, preparation of the line of defense, procedural documents and representation in court. Meanwhile, our specialists are ready to advise you on specific issues and aspects of subsidiary prosecution and possible consequences.

Author is Stanislav Valezhnikov

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